Fidelity National, Five Star Merger Fails

Insurance: Stock market volatility led the latter to call off deal to join the Irvine companies.

A planned merger between Fidelity National Financial Inc. and insurer Five Star Holdings Inc. was called off Thursday, the second deal that has collapsed recently for Irvine-based Fidelity.

Dirk McNamee, president of Five Star, said he halted the deal because the volatile stock market has taken a toll on Fidelity's stock, "making it difficult for us to agree on a pricing formula for the merger."

"We're all pretty disappointed," he said. "No reflection on Fidelity. It's just the entire stock market in general."

The two Irvine companies had been discussing the merger since May.

But Fidelity's stock has slumped 27% since peaking at $43.06 on July 20. The company's shares closed Thursday at $31.50, down $2.31 on the New York Stock Exchange.

The company, a property title insurer and provider of real estate services, was offering 600,000 of its shares for Five Star. The deal was valued at about $24 million when Fidelity's stock was trading at $40 a share.

The proposed merger agreement called for terms to be revised if the stock fell below $36 a share.

Fidelity President Frank Willey said he was disappointed that McNamee called off the deal. He said the stock price does not reflect any problems at Fidelity.

"There's no inefficiency or deficiency at the Fidelity level that you can point to," he said. "We'll leave the door open. If there's potential to talk to them in the future, we're certainly receptive to doing that."

On Aug. 31, Fidelity and Denver-based thrift Matrix Capital Corp. abandoned merger plans because the regulatory requirements proved too "burdensome and raised serious questions" about whether the deal would have been approved, the companies said.

Fidelity is trying to add businesses that offset the effects of interest rate swings on its real estate services, Willey said. Rising rates slow home-sales-related services, such as title insurance.

The company's businesses also include commercial equipment leasing. In addition, it is an investor in CKE Restaurants Inc., which operates Hardee's and other fast-food chains.

Five Star sells insurance to homeowners, drivers and motorcyclists, as well as small businesses, mostly in California. It had $9.47 million of net premiums written in 1997, according to an A.M. Best Co. report.

Fidelity, which has more than 350 offices across the country, had hoped to offer Five Star's homeowners insurance nationally. Five Star currently is licensed to sell insurance only in California, Arizona and Nevada.